Even IMF research now warns against imposing austerity on the UK, yet our political mainstream and the media agree it is necessary. Why is this?

In the immediate shock of the 2008 financial crisis, David Cameron and George Osborne started to argue that, far from being the result of a financial crash, the sharp recession and rapid rise in government debt were the product of the then-Labour government spending too much.

But 2008 was a financial crash centred on the banks. You don’t get a banking crisis from employing too many nurses or teachers. You get one from employing too many bankers. Financiers and speculators had enjoyed an extraordinary boom under New Labour. It was their greed and stupidity that helped provide the trigger for the eventual crash.

The sudden expansion of government borrowing over 2008 and 2009 wasn’t because the Labour government had gone on a mad hospital-building spree. It was because we were in a deep recession, with fewer taxes coming in to the government and more people claiming unemployment benefit.

The “overspending” claim is nonsense as a justification for austerity. Up to 2007, before the crisis, Labour in government spent an average of 39% of the UK’s national income. This is less than the previous Conservative governments of John Major (40%) and Margaret Thatcher (41%).

Ideology and strategy

Even IMF research now warns against imposing austerity on the UK. And yet our entire political mainstream, Tory and Labour alike, backed up by the media, agree it is utterly necessary. Why is this?

The real reason for austerity comes in two parts. The first is ideology. Our political mainstream is dominated by the idea that public spending is inherently bad, and that corporations always know best. Often called “neoliberalism,” people committed to this set of beliefs – as Cameron and Osborne undoubtedly are – would look to cut government spending whatever the circumstances.

The second reason is more sinister. It is strategy. As the bank bailouts showed, the British ruling class has decided that our bloated financial system is too great an asset to allow to fail. A Britain with an international financial centre is a major player on the world stage. A Britain without that centre is just a damp island in the North Atlantic. No sacrifice is too great to keep this moneyspinning show on the road.

But running a massive, poorly-regulated financial centre means having the permanent risk of a crash. And a crash means a recession, and bailouts. It is fear of the crash tomorrow that means public spending has to be attacked today. Austerity clears a space for the next crisis. We can either have a welfare state, or we can have the City of London. Our rulers have chosen the City.

Rest assured: there will be another crash. Already, debts are rising again. The government’s own forecasters expect household debt to reach record levels in just a few years. The whole economy is exposed through its financial system, and the good times are back again for our financial elite. The permanent risk of crisis is the insanity at the heart of British capitalism, and permanent austerity is the result. If we want to end austerity, we have to end the dominance of finance.

Radical economist James Meadway has been an important critic of austerity economics and at the forefront of efforts to promulgate an alternative. James is co-author of Crisis in the Eurozone (2012) and Marx for Today (2014).